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With Verizon CEO Lowell McAdam stating yesterday that “Verizon is not going to Canada”, the government’s best hope for “more choice, lower prices, better service” may have been lost. The mere possibility of a Verizon entry into Canada sparked a massive lobbying campaign by the incumbent carriers, who used every tool at their disposal – huge advertising spend, direct lobbying, lawsuits, union protests, and favourable media on their own networks – to try to sway public opinion and pressure the government to change its approach. The government did not come close to doing so, recognizing that Canadian wireless pricing is high and that its proposed policies were consistent with many other developed countries. The companies claim the concern is merely about spectrum (not competition), yet companies like Telus applauded the government when the spectrum rules were first released in 2012 and it was only after Verizon indicated its potential interest in entering the market that the rules were characterized as loopholes and unfair.

So what comes next?

After the share price of the incumbents jumps up to reflect the premium the market gives to the lack of Canadian competition and the arguments that the government should delay the auction disappear, the government will be left with the same reality that existed before Verizon. As I noted in an earlier post, there are primarily two things that will drive corporate behavior in any market – competition and government regulation. On the competition side, the government must consider whether further steps are needed to entice significant new players into the market. These may include complete removal of foreign investment restrictions from both telecommunications and broadcast.

In the absence of robust competition, however, regulation is needed. The Canadian government should be doing all it can create more competition, but it must also commit to regulation – even if temporary – until that competitive environment develops. The CRTC signalled a willingness to regulate roaming pricing last week, but that may only be the start of far more dramatic steps that are needed to bring Canadians more choice, lower prices, and better service.

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16 Comments

The temptation for the Big 3 will be to immediately pull back on the product improvement measures with which they attempted to endear the public to their cause. That would be a mistake. But alas, they have have missed the cue and continue their Summer tactics of crying for a ‘level’ playing field, now even in the absence of a major threat.

The government has seemed fairly committed to speak to the consumer side of these issues. Now that the rug has been pulled from their current plans, they can either withdraw or up the ante. If the incumbents take this as an easy victory and push on they may not like the next card the government pulls from their deck.

I am relieved, because I believe that Verizon would have simply muscled its way into the Robus cartel, not delivered better value for Canadians. My hope now rests on the only true competitors that have proven to care about delivering real differentiation and competition: Lacavera & Sawiris. Presumably their purchase Accelero of MTS Alstream is a sign they are committed and ready to build a major new Canadian comms player. If they can get 700mhz spectrum and the government mandates tower sharing, our market will change like never before.

Hardly likely that any new small player can exist along the “critical-mass” of the big-3. Look at Shaw as a prime example, they bought spectrum and they came to realize the futility in developing within the cellphone market.

I place no hope in our current cell phone market. The only hope I have is for the advent of the next technology that will obsolete things like spectrum and disgusting handheld devices with their pathetic footprint.

Verizon was never the saviour, nor the damnation of Canadian communicationsVerizon was never the saviour, nor the damnation of Canadian communications.

Telus, Rogers, and Bell are simply arbitrary manifestations of the result OUR CHOSEN SYSTEM produces. Why would Verizon choose to do any different. What if 4 became 3 again.

Separate spectrum + infrastructure from service + sales.

Simple. The big 3 might even get excited about the opportunity to build something where success or failure depends on their actions instead of an arbitrary government. If not, they might be scared of foreign enterprise doing the same job better but without ownership+security fears. Failing that, the barrier to entry becomes an order of magnitude lower and the path is cleared for an upstart to be a roaring success.

Eliminate the excuses and tear down the barriers which only protect unwarranted profits.

Do not try to optimize the current problem, change the situation so the problem solves itself. Ignore economists who are trapped by static state analysis and doomed to work as glorified public relations staffers.

Ironically, the more the government moves to regulate the sector the less likely foreign carriers will be to ever come to Canada. Governments, such as ours, that apply regulation on a willy-nilly basis to win political points are absolutely terrifying to the private sector. With the stroke of a pen, governments can wipe out the competitive advantages that companies have spent decades and $billions to build – it’s just too great a risk.

If you took every bit of the wireless network built in Canada right now and handed it equally to six different competitors what would change?

A couple may expand and update their networks hoping to attract more customers. They would need to raise prices to maintain shareholder value.

A couple may drop prices hoping to attract more customers. They would need to gain enough customers to offset revenue loss, and limit growth and service in order to maintain shareholder value.

A couple may keep the network the same using existing pricing and service levels and hope that they do not lose market share to the companies building or the companies dropping prices and thus maintain shareholder value.

Every scenario has a caveat. The question is, which one are consumers willing to accept?

And remember, despite what everyone thinks or even what the companies themselves may say, a companies sole purpose is to maintain and increase shareholder value and despite any number of competitors, that single goal will remain amongst all of them.

Despite been handed a significant advantage at the spectrum auction and despite being assured access to the telcos towers and infrastructure and despite being able to scoop up existing wireless companies for a song and despite Canada having the highest wireless prices and ARPU in the world, and despite the majority of Canadians that hate the incumbents, they say no thanks.

Why in the world would one of the most successful companies in the world, say no to all that when it cost them pennies compared to what their market cap and what they have just spent buying out Vodafone, say no to a sure thing?

Is the 2-1 spectrum advantage not enough?
Do they doubt the governments assurance for infrastructure access?
Are Wind and Mobilicity priced too high?
Are Canada’s prices not as high as we think?
Will Canadians not flock to a new company?

What logical reason would any foreign company have for not wanting to compete in the highest ARPU and worse serviced market in the world?

Canada’s populist government is always looking for a new toy to play with so they can manipulate voter opinion. The cell phone companies are the toy of the day.

I suspect Verizon considered the relatively small size of Canada’s wireless market, competitive intensity, exceptionally high level of government interference, and unpredictable regulatory environment, and decided it simply wasn’t worth the hassle.

Dr.I don’t know if Dr. Geist reads these comments, but I’m curious whether Canada has government regulation similar to (what might still be) FCC regulation of the LTE spectrum:
(b) Use of devices and applications. Licensees offering service on spectrum subject to this section shall not deny, limit, or restrict the ability of their customers to use the devices and applications of their choice on the licensee’s C Block network, except:
(1) Insofar as such use would not be compliant with published technical standards reasonably necessary for the management or protection of the licensee’s network, or
(2) As required to comply with statute or applicable government regulation.
I googled but I can’t find anything. Who would even govern this in Canada? Industry Canada? CRTC?

If so, some carriers in Canada are demonstrably violating such principles.